Current Knowledge, Common Wisdom: growing a missoula to treasure

Transcription

1 2013 Missoula Housing Report Current Knowledge, Common Wisdom: growing a missoula to treasure Released March 28, 2013 A Community service provided by the missola organization of realtors

2 Notes for Reading the Report 1. As in our past reports, we use data that are publicly available and statistically valid. Our interpretation of the data in some cases may lead to judgments that we believe are sound, but you may disagree with. If so, we invite your comments ( that way we can continue to improve this annual report. 2. Unless otherwise noted, data presented in the text and figures are for the Missoula Urban Area, which includes the City of Missoula and its neighborhoods and surrounding urbanized area, defined as: Rattlesnake, Downtown, University, Farviews, South Hills, Pattee Canyon, Lewis and Clark, Miller Creek, Blue Mountain, Big Flat, Orchard Homes, Mullan Road, Grant Creek, Lolo, Bonner, East Missoula, and Clinton. Some data represent only the city or all of Missoula County, and are noted as such. 3. All data are the most recent available at the time we compiled the report. For calendar year data, that is 2012 in most cases, but 2011 or even 2010 when more recent figures are not yet available. 4. Median is a term used often in this report and is an important term to understand. A median is the amount at which exactly half of the values or numbers being reported are lower and half are higher. A median can be more or less than an average, which is the amount derived by adding the total of all values being reported and dividing by the number of individual values. So a median home price, for example, is the price of the one home, among all prices being considered, that has half of the other homes that are less in price and half that are more in price. In many instances, including reports of home prices, a median can be a more accurate representation than an average, because the sale prices of a very few extraordinarily expensive houses will significantly raise the average, but have little effect on the median. 5. Data from the American Community Survey has a margin of error associated with it. This margin of error reflects the fact that there is always uncertainty involved in the process of creating estimates from a representative sample of the population. In other words, although estimates from the survey data may appear to be different, the difference sometimes falls within the margin of error for the estimates and therefore cannot be considered to be statistically significant. The charts with American Community Survey data portray the data in ranges with a lower and upper bound. The mean is the midpoint of the range. Statistical differences are visually apparent when the ranges do not overlap. 6. Research for this report was conducted principally by the Missoula Organization of REALTORS (MOR). Also contributing to the report were The University of Montana Bureau of Business and Economic Research. These contributors also served as sources of this report s data and information; other sources were the US Census Bureau, US Bureau of Economic Analysis (BEA), US Internal Revenue Service (IRS), US Department of Housing and Urban Development (HUD), US Office of Federal Housing Finance Agency (OFHFA), Montana Department of Labor and Industry, Western Montana Chapter of the National Association of Residential Property Managers (NARPM), Missoula Housing Authority (MHA), Harvard s The State of the Nation s Housing 2012, and Missoula MLS (see next note).

3 7. MLS refers to the Multiple Listing Service. It is a member-based service administered, operated, and paid for by the REALTOR members of a local real estate board that indicates the cooperation among REALTORS to share information about homes and real estate for sale or rent.

4 Table of Contents Notes for Reading the Report...ii Message from the Coordinating Committee... v Executive Summary... 6 Housing Supply: Development and Occupancy... 9 Lot Development...9 Pace of Development...10 Homeowner Occupancy...10 Rental Occupancy...11 Housing Demand: Population and Income Age Distribution...12 Population Dynamics...12 Income Trends...13 Housing Sales and Prices Home Sales in Condominiums and Townhouses...17 Comparative Trends in Home Prices...18 Sales Trends in Neighborhoods...18 Pace of Home Sales...19 Rental Prices...21 Housing Finance Mortgage Loans...22 Impacts of Mortgage Insurance...22 Down Payments...23 Foreclosures Re-Sales and Short Sales...23 Home Ownership Programs...25 Housing Affordability The Housing Affordability Index...26 Share of Income Spent on Housing...27 Unemployment...28 Poverty...28 Rental Assistance Programs...29 Homelessness...29 Conclusion and Outlook... 31

5 Message from the Coordinating Committee We are pleased to present the 2013 Missoula Housing Report, our eighth annual report on housing in the city and county of Missoula. This year s report, as with previous reports, represents the collaborative efforts of the Coordinating Committee for the Housing Report. Committee membership is drawn from the Missoula regional community, with members who represent a wide spectrum of businesses, organizations, agencies, and individuals concerned with our local housing market. The content of each year s report evolves based on: current trends available information feedback from readers like you Our objective is always to provide a comprehensive, credible, and neutral picture of Missoula housing that can be used as a tool by community members and policy makers as they seek to serve Missoula s needs. Changes to this year s report include discussions of low income housing and homelessness in our community. We also focus attention on distressed sales this year, which is currently a significant issue. In previous years we added neighborhood information and more detail on what is happening in housing finance. So please read this report and let us know your thoughts on how we might improve it. If, after reading this report, you are interested in getting involved in meeting the housing needs of our community please contact any of the public or private agencies engaged in local housing mentioned in this report. Additional housing resources are listed on the Missoula Organization of REALTORS website at Coordinating Committee: Jim Sylvester Jim McGrath Sheila Lund Nick Kaufman Tom Chapman Collin Bangs Brint Wahlberg Ruth Link & Austin James Contributing Resources: Bureau of Business and Economic Research UM Missoula Housing Authority First Security Bank WGM Group Western Montana Chapter of NARPM Professional Property Managment Coldwell Banker Steinbrenner Real Estate Windermere Real Estate

6 Executive Summary Housing Supply: Development and Occupancy Sales of empty lots increased slightly again in 2012, for the second year in a row. Median sales price was down by 25 percent, however, following a 23 percent decrease the year before. The number of building permits issued by the City of Missoula decreased from 498 in 2011 to 254 in 2012, a difference of 49 percent. This loss is entirely attributed to a decline in duplex and multi-family permits, as single-family permits increased for the first time in seven years. While much of the multi-family building took place in 2012, the permits were issued in Missoula County building permits increased sharply in single-family with a modest increase in duplexes and a decline in multi-family units for the second year in a row. Approximately 60 percent of Missoula County residents live in homes they own, and about 40 percent are renters. The percentage of renters increased slightly over last year. Missoula continues to have a lower rental vacancy rate, at 3.5 percent, than the national average, which was at 9.5 percent in This trend is not uncommon in college towns. The fourth quarter of 2012 began to show dramatic increases as the result of several large multi family developments being completed and available for rent. Housing Demand: Population and Income The population in Missoula County grew a total of 14.5 percent between 2000 and Missoula City grew slightly faster, at 16 percent, than the unincorporated areas of the county. Growth in 2011 was approximately 0.6. The University of Montana, Echo Boomers, and Baby Boomers continue to figure prominently in the age distribution of the Missoula County population, with the two most pronounced age ranges at years and years. The median age of a Missoula resident is 34 years old. Population increases in two ways, natural increase (births) and net migration. Natural increase in Missoula declined, as the number of births in 2011 was substantially lower than previous years. This is a reflection of the economy; households are hesitant to start or increase a family during uncertain times. Migration increased in 2011, following two years of sharp decline. Median household income in Missoula County is about the same as the state level, but significantly below the US median. 6 Per capita income is a generally recognized measure of economic well-being. It is derived by dividing total personal income by total population. Per capita income in Missoula is approximately $35,000 per person, which is slightly below the Montana per capita of $36,000.

7 Nonfarm earnings are also a good indicator of economic vitality. After declines in 2008 through 2010, the Missoula economy appears to have turned the corner with positive growth in Housing Sales and Prices The number of homes sold in Missoula increased by 22 percent in 2012, with 1,068 sales compared to 878 in This is the first increase since The median home price increased by 2 percent, to $209,700, in 2012, following the same increase last year. Only two neighborhoods out of the 12 tracked, Lewis and Clark and Grant Creek, had fewer sales in 2012 than in Sales of condominiums and townhouses in 2012 decreased slightly compared with 2011; however experienced minor increases in the $100,000-$150,000 and $200,000+ ranges. Missoula s overall absorption rate spiked in late 2010 to almost 30 months. The market absorption rate has gradually been decreasing, suggesting a return closer to a desired equilibrium. However, if you consider the rule of thumb on over-supply versus normal supply, you see that the Missoula market has only moved into a more normal range in the last two quarters. Missoula saw a decline in rental costs across almost every category in 2012 compared with 2011, partially due to a significant number of new apartments on the market in 2012 that led to an increase in supply over demand. Housing Finance Mortgage interest rates in 2012 continued downward, ending the year at 3.25 percent for a conventional loan. The American Taxpayer Relief Act of 2012 allows mortgage insurance to be tax deductible for 2012 and This provides some nice relief, albeit temporarily, to homeowners. Down payment requirements for most loan types remained unchanged in Typical down payments range from 3.50 percent to 5 percent. Missoula saw an increase in distressed sales again in 2012, although at a lesser percentage than the past three years saw a six percent increase in the number of net foreclosures in Missoula County, with 151 compared to 142 in This follows two years of decreases after hitting a high of 262 in Home$tart was offered again in This grant program provides low and moderate income homebuyers with grant funds that offer $3 for every $1 of homebuyer funds up to $5,000. New regulatory and legislative changes impacted the way the mortgage industry does business. One example is the new requirements for the industry to be especially diligent in making sure home appraisals are performed effectively. 7

8 Housing Affordability The Housing Affordability Index (HAI) is an indicator that shows how much a family can afford; any HAI over 100 means that family can afford a median priced home. While the National Association of REALTORS (NAR) assumes a 20 percent down payment, the down payments you will see in this report vary according to local trends and requirements. In 2012, most home purchasers did not have a 20 percent down payment in Missoula, which makes the actual HAI 101. For comparisons sake, if we assume a 20 percent down payment in Missoula, a family of four has an HAI of 133, significantly less than the national average of in Missoula County s unemployment rate declined to six percent in 2012 from its peak in 2010 of nearly seven percent. The national unemployment rate in December of 2012, by comparison, was nearly eight percent. Between 6,500-10,000 households live below the federal poverty rate in Missoula County. The Missoula Housing Authority has 774 available rent-subsidized Section 8 vouchers, with another 262 vouchers provided by the Montana Department of Commerce. Unfortunately this is inadequate to meet the need. Homeword leased 35 new affordable units in 2012, and 115 new units built by Rocky Mountain Development Group, MHA, and the city of Missoula also began leasing. In 2011, the City and County of Missoula and the United Way have sponsored a 10 year plan to end homelessness. The number of homeless individuals and families in Missoula increased in Last year we had 789 children in Missoula were homeless or at risk. Conclusion and Outlook Almost all measures point to a housing market that is finally rebounding, both locally and nationally. The increase in income and decrease in interest rates has allowed homes in Missoula to be more affordable in 2012 despite an increase in median home prices. However with an actual HAI of 101 for a four person household, if median home prices continue to go up, Missoula will face the recovery still dealing with issues with housing affordability. While low interest rates are helping homes sales, we must remember that not everyone is able to take advantage of the current rates to buy a home. Current lending standards remain tight and there have been instances where seemingly qualified buyers have come across issues obtaining financing. The Missoula market has finally returned to normal absorption rates suggesting we are as close to what is expected to be a normal market in terms of absorption (supply and demand) than we have seen in over five years. While the signs are pointing in the right direction, this economic recovery has been longer and more complicated than most of us hoped for. Missoula is still experiencing a higher median price than the average incomes can afford. But the economic conditions have closed the gap slighly. In addition, while the maket has improved, the number of distressed sales has as well. While the coming year shows the signs of a positve movement in Missoula, we have yet to see how some of these issues will effect recovery. 8

9 Housing Supply: Development and Occupancy Lot Development Lot sales in Missoula in 2012 were up slightly for the second year in a row (Table 1). However, the median sales price was down again last year, this time by 25 percent. While the economy has impacted the price of undeveloped lots, another factor has been at play as well. Prior to 2007 lots were larger and the supply of lots was limited. Since that time, a large quantity of land was subdivided, many of the lots are smaller than they had been previously. This increased supply coupled with decreased demand lead us to our current situation. Figure 1: Number of lots sold increased for the second consecutive year Table 1: 2012 median price of lots decreased and took almost three times as long to sell Residential Lot Sales Missoula Urban Area Year Lot Sales Median % Median Price Change DOM $55, $61, % $66, % $52, % $70, % $59, % $59, % $70, % $72, % $87, % $67, % $50, % 381 Source: MOR Multiple Listing Service Figure 2: While median price dropped considerably for the second consecutive year 9

10 Pace of Development Figures 3 and 4: Building permits issued in 2012 increased in singlefamily and decreased in multi-family for both the city and county. Single family permits doubled from the previous year in the county. The number of residential units permitted by the City of Missoula in 2012 decreased by 49 percent over the 2011 number (Figure 3). This loss was entirely accounted for in duplex and multi-family permitting, as single family permits increased for the first time in seven years, but still about three times less than the record high number of singlefamily permits issued in In contrast, multi-family permits decreased to a lower level than in the previous two years. While much of the multi-family building took place in 2012, the permits were issued in 2011, explaining the large number of permits that year and the significant number of apartments that came on the market in Missoula County building permits increased sharply in single-family while multi-family is at zero (Figure 4). Please note that the data reported for Missoula County is only nine months of data due to a change in reporting software during the year. The State of the Nation s Housing 2012, a yearly release from the Joint Center for Housing Studies of Harvard University, reported:... that there is reason to believe that 2012 will mark the beginning of a true housing market recovery. Sustained employment growth will remain key, providing the stimulus for stronger household growth and bringing relief to some distressed homeowners. Over the next 20 years, the echo boomers have the potential to spur new home demand to an even greater extent than their parents did beginning in the 1970 s. The good news for housing production is that this new generation already outnumbers that of the baby boomers at the same ages. Homeowner Occupancy Approximately 60 percent of Missoula County residents live in homes they own, as measured by the US Census Bureau American Community Survey, 2011, with the other 40 percent renting (Figure 5) data is the most current 10

11 Figure 5: Approximately 40 percent of Missoulians rented their homes in 2011, up from about 36 percent in 2010 information available at the time of printing. The percentage of renters has increased slightly over the last few years. Nationally, 65 percent of Americans live in homes they own, with 35 percent renting. The fact that Missoula has more renters than the national average is due, in part, to the impact of The University of Montana. Rental Occupancy Figure 6: The vacancy rate of studio units almost doubled from 2011 to 2012 Figure 7: While vacancy rates varied by quarter, the rate increased overall for 2012 Harvard s The State of the Nation s Housing 2012 reported the national rental vacancy rate at 9.5 percent in 2011, compared to Missoula s average vacancy rate of 3.5 percent. Although vacancy rates are still below the national average across all categories, some segments took a significant jump in 2012 with the continued development of multifamily units. The vacancy rate of studio units nearly doubled (Figure 6). Given the continued decline in student population, this trend is likely to continue next year. Low rental vacancy rates are common in college towns due to the pressure exerted by the student population. College towns such as Bozeman and Ft. Collins, CO also have vacancy rates well below the national average. As you can see by the trend lines in Figure 7, the vacancy rate for 2011 was stable. In contrast to 2011, as new units came onto the marketplace in 2012 the rental market experienced an overall increase in vacancy rates. Another item of note is that while the 4 th quarter historically has very low vacancy rates, they almost doubled from 2.1 percent in 2011 to 3.9 percent in

12 Housing Demand: Population and Income Age Distribution The University of Montana continues to figure prominently in the age distribution of the Missoula County population. In 2011, approximately 13 percent of males and females were between the ages of 20 and 24. Another 8 percent, known as Echo Boomers, were between 25 and 29. As this generation which is even larger than its baby boomer parents ages, it will play a significant part in the market over the next 15 years. Baby boomers, ages 46-64, make up approximately 25 percent of Missoula s population (Figure 8). The median age of Missoula residents is 34 years old, while Montana s median age is Figure 8: Two dominant age ranges, and 45-64, make up a majority of Missoula s population. Population Dynamics There is a definite relationship between population and housing demand. The size of a population demands a certain number of housing units, but the number of available housing units also determines a community s ability to accommodate growth. The population in Missoula County grew a total of 14.5 percent between 2000 and Missoula City grew slightly faster, at 16 percent, than the unincorporated areas of the county. Growth in 2011 was approximately 0.6 percent (Figure 8). 12

13 Migration Figure 9: Missoula County has seen steady population growth for the past decade Four factors influence population growth: birth, death, immigration, and emigration. Birth and death are referred to as natural factors, and immigration and emigration are referred to as migration factors. In Missoula County, natural increase declined as the number of births in 2011 was substantially lower than previous years (Figure 10). Missoula is not unusual in this regard. The national birth rate has dropped to its lowest point in 25 years. This is a reflection of several factors including the economy, as households are hesitant to start or increase a family during uncertain times. Figure 10: Net migration is the more variable component of Missoula s population Income Trends Median household income in Missoula County is about the same as the state level, but significantly below the US median. Missoula County homeowners have significantly higher median income than other Montana Homeowners. Figure 11: Missoula s median income for both homeowners and renters is above the state level Per capita income is a generally recognized measure of economic wellbeing. It is a relative measure that can be compared with other regions. It is derived by dividing total personal income by total population. Per capita income in Missoula County is down from its peak in 2007, but has stabilized at about $35,000 per person (Figure 12). 13

14 Nonfarm earnings are another good indicator of economic vitality. After declines in 2008 through 2010 the Missoula economy appears to have turned the corner with positive growth in 2011 (Figure 13). The GINI Index is a measure of income inequality. Lower numbers show a more even distribution of money, with an index of zero suggesting that everyone has an equal income. An index of one would indicate that all income belongs to one person or entity. The GINI index, which includes college students, suggests that Missoula County incomes were more unequal than Montana State incomes. There is no difference between Missoula County and Montana, however, after 2010 (Figure 14). Missoula income distribution has become more equal after peaking in Figure 12: Per capita income saw its first increase since 2007 Figure 13: Nonfarm earnings saw its first positive growth since 2007 Figure 14: There is little difference between Missoula and Montana income inequality after

15 Housing Sales and Prices Home Sales in 2012 The number of homes sold in Missoula increased by 22 percent in A total of 1,068 homes were sold, up from 878 in 2011 (Table 2 and Figure 15). The median price of homes sold increased by just over 2 percent to $209,700. Home sales were strongest in the $150,000- $275,000 price range. This makes sense given the median price of homes in Missoula. The greatest increase in number of homes sold, however, came in the $275,000-$350,000 price range (Figure 19). Both of these measures reflect national trends. The National Association of REALTORS Table 2: Missoula home sales increased both in number and median price. Median Price of Sales in Missoula Urban Area, Year Annual Number of % Change in Median Median Price Sales Price ,211 $138,000 n/a ,069 $150, % ,150 $163, % ,300 $179, % ,558 $191, % ,586 $206, % ,392 $219, % $215, % ,033 $208, % $200, % $205, % ,068 $209, % Source: MOR Multiple Listing Service reports that, nationally, the median home price rose to $176,600, up from $166,100 in 2011 and the number of sales of existing homes was at 4,650,000, up from 4,260,000 in

16 Figure 15: 2012 saw a nice uptick after several years of sluggish sales Figure 16: Sales were higher in each quarter in 2012 compared to Figure 17: Two years in a row of median price increases represents an encouraging trend. Missoula s 2012 median price is approximately 95 percent of its 2007 price, compared to the national average which is at 74 percent of its 2007 price. 16

17 Figure 18: Change in Missoula s median home price has been much less volatile than at the national level, dipping into the negative only the three years of Figure 19: 2012 saw a general upswing in all price ranges. Condominiums and Townhouses Sales of condominiums and townhouses in 2012 was steady compared with 2011, yet still down considerably from its peak years of 2006 and Sales decreased in the 0-$100,000 and the $150,000-$200,000 price ranges but increased in the $100,000-$150,000 and $200,000+ price ranges (Figure 20). 17

18 Comparative Trends in Home Prices Figure 20: Sales of condominiums and townhouses decreased in the lowest price range and increased in the highest Both the Missoula and national housing markets saw an increase in both number of homes sold and median price. Missoula s median home price increased by 2.2 percent and the national median home price increased by 6 percent. The number of homes sold in Missoula jumped an incredible 22 percent, while the number of homes sold nationally increased by 9 percent, according to the National Association of REALTORS. The Federal Housing Finance Agency Housing Price Figure 21: Housing prices, as measured by the Housing Price Index, show a continued upward trend since bottoming out in second quarter 2011 Index is a broad measure of the movement of single-family house prices. It measures the average price changes in repeat sales or refinancing of single-family properties using data from FannieMae and FreddieMac. In the first quarter of 1995 all price levels were set at 100, which is the base for the index. Housing prices in all Montana cities have increased steadily since 2011 (Figure 21). Sales Trends in Neighborhoods The majority of Missoula s neighborhoods experienced an increase in number of homes sold in 2012 (Figure 22). The exceptions were Lewis and Clark and Grant Creek, which both decreased, and the Rattlesnake, which remained the same as Additionally, all but three of Missoula s neighborhoods experienced an increase in median home price in 2012 (Figure 23). The exceptions were Downtown/Northside and Lewis and Clark, which both decreased, and Mullan Road/Expressway, which remained the same as

19 Figure 22: Only two neighborhoods experienced decreased sales in 2012 Figure 23: And only two neighborhoods experienced decreased median sales price in 2012 Pace of Home Sales One measure of a healthy real estate market is absorption rate. The absorption rate represents the total housing supply of the market at a given time. Unlike the reporting of days on market this rate takes active listing information into account as well. In the past any reported days on market numbers reflected the average time on market for only sold properties, but that is only half of the story. The absorption rate digs deeper and looks at the amount of sold inventory compared to the amount of active inventory at the time. To calculate this rate we take the total number of active listings and divide that by the number of sales over a one-month period. The resulting number represents how many months worth of inventory is currently listed for sale. For example if an area had 20 listings and five sales in the last 30 days, the absorption rate would be 4, meaning that based on the prior market s activity it would take four months for the remaining current inventory to sell. A general rule of thumb is anything under three months is a seller s market, between three to 19

20 Figure 24: Missoula s market absorption rate is finally back within the normal range of 3-9 months Figure 25: All price segments, except $425k+ have settled back to normal nine months is normal market, nine to 12 months is over-supply, and the further you get over 12 months the more the market is over-loaded and a buyer s market. The Missoula Organization of REALTORS have been keeping absorption rate numbers since 2008 and moved to the current segmented format in mid The reasoning behind keeping segmented data at certain price points is that it tells stories of which price range is showing better overall market health. As Figures 24 and 25 show, the real estate bubble and the recovery so far have had different effects depending on what price range houses have been selling for. For the total market you can see there was a spike in late 2010 which pushed Missoula s overall absorption rate to almost 30 months (Figure 24). This can be attributed to the end of the first-time home buyer and move-up buyer tax credit. The market lost buyers that either bought or decided against buying once the tax credit was up and had to 20

21 adjust and recover to that. The market absorption rate has gradually been decreasing, suggesting a return closer to a desired equilibrium. However, if you consider the rule of thumb on over-supply versus normal supply, you see that the Missoula market has only moved into a more normal range in the last two quarters. Taking a look at the segmented data we see that the lower price ranges have adjusted and adapted to the current market more quickly (Figure 25). The positive that we see in this data is that most price segments have moved into a scenario of more normal supply and some areas even creeping down into what one may consider a seller s market. However the lack of supply presents challenges as well while buyers might have to wait longer to find housing they want and find more fierce competition when bidding on listings. Additionally we see the top-end of Missoula s market still struggling with vast over-supply. It has been improving for those who own homes over $425,000 but things are still not close to a market with a normal supply of buyers and sellers. Rental Prices Rental prices in Missoula decreased across all categories in 2012 compared with 2011 rates (Figure 26). The largest decreases were seen in the house category and the least change was seen in the duplex category. The decrease in rental prices may be attributed, in part, to the multi-family building that took place in As noted earlier, a spike in permits issued in 2011 led to a significant number of apartments on the market in 2012, which increased supply over demand. Figure 26: Rental costs decreased across all categories 21

22 Housing Finance Mortgage Loans In the latter quarters of the year the pending fiscal cliff caused concern for economic slowdown and other repercussions from tax increases and decreases in spending. Mortgage interest rates closed the year on a nearly record low note (Table 3) was an improved year for most markets. Sales were revived by improved affordability, provided through low mortgage rates and affordable prices. Table 3: Lower interest rates dominated the scene in Mortgage Interest Rates Mortgage Type Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year End 30 Year Fixed 3.750% 3.625% 3.500% 3.375% 3.250% 15 Year Fixed 3.125% 3.000% 2.875% 2.750% 2.625% FHA/VA 3.500% 3.500% 3.250% 3.250% 3.000% 5/1 ARM 2.625% 2.750% 2.625% 2.750% 2.750% MBOH 3.875% 3.875% 3.375% 3.375% 3.375% Source: First Security Bank FHA: Federal Housing Administration VA: Veterans Affairs MBOH: Montana Board of Housing 5/1 ARM: A form of an adjustable rate mortgage that has a fixed rate for five years. Once the mortgage has matured for five years, the rate adjusts annually until it reaches a pre-determined limit Figure 27: Federal Reserve policy and programs had a favorable effect on interest rates. Impacts of Mortgage Insurance Mortgage insurance is a policy that protects the lender in the event that the homeowner defaults on payments. Mortgage insurance premiums are paid by the homeowner. Mortgage insurance is not required on all loans, but is required on conventional loans when the first mortgage is greater than 80 percent of the property value. FHA and Rural Development (RD) loans also require mortgage insurance. 22

23 On a positive note, mortgage insurance is tax deductible for 2012 and 2013 on a qualified personal residence. The deduction is phased out by 10 percent for each $1,000 by which the taxpayer s adjusted gross income exceeds $100,000. Thus, the deduction is unavailable for a taxpayer with an adjusted gross income in excess of $110,000. Down Payments Down payment requirements for most loan program types, including FHA and conventional loan products remain virtually the same. FHA continues to require a minimum of 3.50 percent down while some conventional products are being offered between 3 percent and 5 percent. A typical down payment on a conventional loan would be 5 percent or more. FHA financing is still an option with a minimum down payment of 3.50 percent. It may not be the first choice for borrowers who have a 5 percent down payment because of the upfront and annual mortgage insurance premiums which increased in April FHA is trying to reduce its risk tolerance by avoiding layering risks, which include lower credit scores, low down payments and high debt-to-income ratios. U. S. Department of Veterans Affairs (VA) loans are still a viable option for borrowers who are eligible and continue to offer 100 percent financing in most cases. USDA Rural Development loans continue to be a favorable choice for those borrowers who have little to no down payment and qualify under the income guidelines and other underwriting parameters. There are, however, restrictions on where the property can be located. Foreclosures Re-Sales and Short Sales Missoula saw an increase in distressed sales again in 2012, although at a lesser percentage than the past three years (Figure 28). A distressed sale is a property that is either under foreclosure or a short sale. Distressed property usually sells far below market value. A Foreclosure Re-Sale is when the bank sells a property after the foreclosure has taken Figure 28: Both types of distressed sales increased in 2012 Figure 29: While the number of distressed sales increased in 2012, the percentage of total sales decreased 23

24 place. A short sale is a process where homeowners sell their properties for less than their mortgage balance, with the approval of their lender. Short sales allow homeowners to pay their lenders and avoid foreclosure. It reduces additional costs for both the creditor and borrower. Short sales in Missoula stayed relatively level from 2009 to 2011, and then increased by 18 percent in The number of foreclosure re-sales has increased each year since 2009, although the percentage of increase is declining each year, with a modest increase from 109 in 2011 to 114 in 2012 (Figure 27). Distressed sales, as a percentage of total sales, were down slightly in 2012 even though the number of distressed sales increased. While it is encouraging that the total number of homes sold in Missoula increased, the percentage of distressed sales is still twice what it was in 2009 (Figure 28) saw a six percent increase in the number of net foreclosures in Missoula County, with 151 compared to 142 in 2011 (Table 5 and Figure 29). This follows two years of decreases after hitting a high of 262 in While there were 62 fewer foreclosure notices of sale in 2012 than in 2011, the number of notices of cancellation of sale decreased by 25 percent. This led to the net increase of six percent. Table 5: After two years of decreasing net foreclosures, Missoula saw an increase in Bank Foreclosure Notices, Missoula County Year Notice of Sale Cancellation of Sale Net Foreclosures Source: First Security Bank, Missoula, MT Table 6: Net foreclosures were up in the first three quarters of 2012 over 2011, but decreased in quarter four compared to Year Quarter Sale sures Notice of Net Foreclo- Cancellation of Sale Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: First Security Bank, Missoula, MT 24

25 Figure 30: Net foreclosures, while still quite high, are returning closer to the average for the past decade. Home Ownership Programs A grant program, Home$tart, was offered again in The Federal Home Loan Bank of Seattle partners with participating members to offer low and moderate income homebuyers grant funds that provide $3 for every $1 of homebuyer s funds up to $5,000. Home$tart Program grants may be used for down payments, closing costs, or rehabilitation of owner-occupied housing to qualifying homebuyers. The Consumer Financial Protection Bureau commemorated its first anniversary in 2012, but there has not been much celebrating. The bureau was created to write and enforce federal consumer protection laws. However, until early 2013 it is unclear how it will affect homeownership. One of the biggest concerns for lenders is a perceived lack of clarity in the language and enforcement parameters. One area that is impacted by regulatory and legislative changes is collateral evaluation. Collateral evaluation is more commonly referred to as property appraisal. As the residential mortgage industry continues to retrench and rebound, there are unfolding regulations that restrict how lenders are permitted to develop relationships with appraisers. Entities such as the Office of the Comptroller of the Currency, The Federal Deposit Insurance Corp. (FDIC), FannieMae and FreddieMac require lenders to be familiar with the appraisers who provide service. Ultimately, the lender is responsible for how property is valued and for ensuring that appraisers follow the processes to meet underwriting requirements. As we look back upon 2012 it was a fairly favorable climate for mortgage lending and borrowing, despite obvious challenges. 25

26 Housing Affordability The Housing Affordability Index The Housing Affordability Index (HAI) compares the median price of a home and the median income of households in a community. A value of 100 means that a household with a median income has exactly enough income to qualify for a mortgage on a median-priced home. For a value above 100, a household with a median income has more than enough income to qualify for a mortgage on a median-priced home. The National HAI calculation assumes a 20 percent down payment and it also assumes that no more than 25 percent of the household s monthly income goes toward the mortgage payment (principle and interest). In the 2012 report, we heard concern about the fact that mortgage insurance, which is now a significant cost to consumers, was not included in our calculation for the HAI. Our 2012 calculations now include the cost of mortgage insurance (Table 7). Mortgage insurance is protection for the lender (not the borrower) in the event of default. The mortgage insurance company will reimburse the lender for all or part of losses they may have if the home is foreclosed on and must be sold by the lender. If your down payment is less than 20 percent, or you are refinancing more than 80 percent of your home s value, most lenders will require that you purchase mortgage insurance. Although mortgage insurance is primarily for the benefit of the lender, it does allow homebuyers to purchase their home with a low down payment. The borrower pays the mortgage insurance premium on behalf of the lender. We used an average cost of 1 percent of the principle on the loan. Figure 31: In 2012, housing affordability improved for all household categories 26

27 According to NAR, the national Housing Affordability Index in 2012 hit a record high 193.5, almost two thirds higher than the index reported in the Missoula market. For comparison s sake if we assume a 20% down payment, the HAI for a four person family in Missoula is 133, which tells us that a four person household earning the median income has the income necessary to afford a median-priced home. While we did assume a 20 percent down payment for comparison above, very few buyers in Missoula purchased a home with that much. As you can see (Table 7), a 4% down payment was used in 2012 as a more realistic indicator of current trends, which also means Table 7: HAI calculations now including mortgage insurance Missoula Housing Affordability Index, Median Home Price (MOR) $149,500 $200,500 $205,000 $209,700 Down payment 10.0% 4.0% 4.0% 4.0% Interest Rate 5.75% 4.50% 3.75% 3.50% Loan Term 30 years 30 years 30 years 30 years Mortgage Insurance $164 $168 Total Monthly Payments* $948 $1,192 $1,297 $1,299 Median Family Income 1 person $30,000 $43,000 $41,400 $44,000 2 person $34,300 $49,200 $47,300 $50,300 3 person $38,600 $55,300 $53,200 $56,600 4 person $42,900 $61,400 $59,100 $62,800 Housing Affordability Index person person person person Median Family Income Needed to Purchase a Median Priced Home Source: MOR Multiple Listing Service *Includes taxes and homeowners insurance on a 30 year fixed loan $45,502 $57,226 $62,260 $62,349 that a mortgage insurance payment is required. In that case, only four person families were able to afford the median price of $209,700 for a home, with the other three categories falling far short of the $62,349 median income necessary. Single person households earn only 71 percent of the income necessary to purchase a median-priced home in Missoula. Figure 32: Approximately half of all renters in Missoula spend more than 35% of their income on housing. Share of Income Spent on Housing It is generally accepted that no more than 30 percent (and, more safely, 25 percent) of a household s gross monthly income should be spent on housing. The 2011 American Community Survey shows that about 47% of Montana renters spend more than 30 percent of their income on housing. The problem is worse in Missoula, with about 60 percent of all renters spending more than 30 percent of 27

28 their income on housing. Additionally, between 43 and 51 percent of renters spend more than 35 percent of their household income on rent. 29 to 32 percent of homeowners pay more than 35 percent of their household income on housing (Figure 32). That makes Missoula the most unaffordable major market in Montana for renters. Households who must pay a large portion of income on housing have a difficult time meeting other obligations. Harvard s The State of the Nation s Housing 2012 states that those with severe housing cost burdens spend about three-fifths as much on food, half as much on clothes, and two-fifths as much on healthcare as those living in affordable housing. Figure 33: Missoula s unemployment rate dropped for the third year, following a four year increase. Unemployment Figure 34: After a dip in 2010, Missoula s poverty level rose again in 2011 The unemployment rate is defined as the percentage of the total labor force that is unemployed but able to work and actively seeking employment. Missoula County s unemployment rate declined to six percent in 2012 from its peak in 2010 of nearly seven percent (Figure 33). The national unemployment rate in December of 2012 was just shy of eight percent. While Montana experienced lower unemployment rates than the national average throughout the economic downturn, we are still nearly double the rate we were before the crisis began. Poverty Although the poverty level in Missoula appears higher than the state rate, the difference is not statistically significant. More than 17 percent of Missoula County households live under the Federal Poverty Level, compared to 15 percent of Montana households. Estimates of poverty in Missoula County varied between nearly 19 percent in 2009 and 14 percent in One can say with a good degree of certainty that between 6,500 and 10,000 Missoula County households live below the Federal Poverty Level. 28

29 Rental Assistance Programs The Missoula Housing Authority (MHA) has 774 available Section 8 vouchers that subsidize rent to private landlords for eligible participants. Another 262 vouchers are provided in Missoula by the Montana Department of Commerce. Combined availability of these vouchers, which are inadequate to meet needs in a healthy economy, is further strained by the continued economic downturn, as tenant incomes are reduced and funding for vouchers has been reduced as well saw the leasing of 35 new affordable units built by Homeword in Also, 115 new units built by Rocky Mountain Development Group, MHA and the City of Missoula began leasing. This is a mixed income project including 20 units of Public Housing and 95 units of affordable housing managed by MHA. Table 8: Waiting lists have gone down in all categories in Waiting Lists MHA Unduplicated MHA Sec 8 Voucher MHA Homeless Project MHA Homeless Project Source: Missoula Housing Authority Figure 35: Average contract monthly rent increased again in 2012 for all categories In December 2012, the unduplicated number of households on MHA waitlists was 1,920, down slightly from 2,030 in 2011 and 1,944 in 2008, but up from 1,079 in The number of households on the Section 8 waiting list was 1,756, also down from 1,845 in 2011, but up from 1,653 last year and 1,063 in Housing Choice Vouchers make private-market housing affordable for low-income families and individuals. In the Housing Choice Voucher program, the Housing Authority pays a fixed amount toward the rent, based on the tenant s income and the Housing Authority s approved payment standards (Figure 35). MHA received a modest increase in the number of vouchers it provides for homeless households in 2012 and has applied for another in The number of vouchers for homeless is up to 112, from 101 in 2010 and 96 in The number of homeless individuals on two of the waitlists was 85 and 111, compared to last year s 141 and

30 Homelessness In 2011, the City and County of Missoula and the United Way sponsored a 10 year plan to end homelessness. This important community attention to those homeless and at risk for losing housing has not had time to yield any specific results. We wanted to acknowledge the effort in this report by including some relevant housing data regarding homelessness in our community. One of the recommendations of the planning committee, however, is that Missoula develop a more systematic data collection and analysis system regarding the needs and causes of homelessness locally and develop informed responses. Coincidentally, the Human Resource Council is devoting some resources to developing a community database to help in assessment and referral. The best data we have currently the annual Point in Time Survey, a census of the homeless conducted every January produces inconsistent data, or data that may not inform us much. Because the questions asked and the methods of collection vary from year-toyear, it is hard to draw any conclusions from the data. In the point-in-time-table is the number of homeless individuals and families, which means they re in emergency shelter or on the street, from 2007 to 2012 as an example (Table 9). Table 9: Homeless continues to be a serious issue in Missoula Homelessness In Missoula, Year Individuals Families Source: Missoula Housing Authority Figure 36: saw a dramatic increase in at-risk children in school Last year, the school district identified 614 children in Missoula as homeless and another 175 as at-risk (Figure 36). This figure is a cumulative number of unstably housed children identified throughout the school year. The unstable housing varies from brief periods of literal homelessness to a pattern of frequently moving and other situations. According to the National Coalition for the Homeless, families with children is one of the fastest growing segments of the homeless population; as Figure 36 illustrates, Missoula is no exception. The number of homeless and at-risk children in Missoula County Public Schools increased 38 percent in just one academic year. As mentioned above, MHA has increased the number of vouchers and units for homeless individuals and families incrementally over the last several years. Missoula has two-thirds of the permanent housing for the homeless in the state of Montana. However, during the same period, some other resources serving the homeless have been reduced or eliminated. 30